The great virtue of the Congressional Budget Office’s recent report on the minimum wage is that
it injects a much-needed dose of reality into the debate over job creation. The Obama
administration and its congressional allies have taken the position that raising the minimum wage
almost 40 percent would have little, if any, adverse effect on jobs. The CBO rejects this view as
unlikely. The gap between the administration’s claim and plausible outcomes reveals larger
inconsistencies in the White House’s boast that job creation is a top priority.

Under the proposal, the federal minimum wage would go from today’s $7.25 to $10.10 by 2016 in
three annual steps. Conservatives have argued that this would kill jobs — if government boosts the
cost of labor, employers will buy less of it — while doing little to reduce poverty. By and large,
the CBO report supports this critique. Here are its main conclusions:

• The higher minimum wage would reduce jobs by about 500,000, or 0.3 percent of projected 2016
employment. The CBO admits that its estimates involve much uncertainty. Job loss, it says, might be
as high as 1 million or as low as almost nothing. The half-million figure is its best judgment.

• Up to 25 million workers would receive wage increases, about 16.5 million below the proposed
minimum and possibly another 8 million just above it. Wage increases would raise the incomes of
families in poverty by about 3 percent, or $300 annually. The effect is muted because most people
in poverty don’t have jobs and many low-income workers are part-time (47 percent).

• Higher incomes would lift about 900,000 people above the government’s poverty line in 2016
($24,100 for a family of four). That’s about 2 percent of the projected 45 million poor. The small
impact also reflects the fact that many low-income workers, presumably young, come from
middle-class families, including 33 percent from families with incomes exceeding three times the
poverty line.

An administration serious about job creation has to sacrifice other priorities to achieve it.
This, President Barack Obama hasn’t done. In another report, the CBO estimated that the
health-insurance subsidies in the Affordable Care Act (Obamacare) would discourage people from
working, resulting in a loss of the equivalent of 2.5 million full-time workers by 2024. The act
also contains powerful disincentives against hiring low-income workers, by requiring companies to
provide their health insurance.

Choices exist. On some, the White House has voted against job creation. Naturally, it tries to
obscure this. Concerning the minimum wage, it predictably assailed the estimated job losses. These
don’t reflect the “consensus view of economists … that raising the minimum wage has little or no
negative effect on employment,” wrote Jason Furman and Betsey Stevenson of the White House Council
of Economic Advisers.

How convenient. Conflicts vanish. The decision is a no-brainer. So say the studies.

This is fairy-tale economics. Many studies find negative job effects. The CBO didn’t make them
up. As important, the CBO shows why many recent studies may not be relevant to today’s proposal.
The reason: The proposed increase is much “larger than most of the increases that have been
studied.” Even after inflation, it would likely be about a third. Moreover, the minimum would be
indexed to inflation, rising automatically with prices. This, too, is new.

All these suggest larger job effects, says the CBO. Cutting jobs involves one-time costs and
disruptions that companies may avoid for small increases in the minimum — but not for big
increases. Similarly, more workers would be affected than in the past (about 10 percent of workers
compared with 5 percent for increases since 1980). Finally, indexing the minimum to inflation
implies a permanence that may inspire firms to make deep cuts in labor costs. Companies won’t hire
unless new workers are profitable.

Hiking the minimum wage is more compelling as politics than as social policy. The best way to
help low-income workers would be to expand the Earned Income Tax Credit, which is a wage subsidy.
This would eliminate hiring disincentives and focus benefits on the poorest workers. But the Earned
Income Tax Credit lacks the minimum wage’s political charms. The minimum wage is liberals’ symbol
for showing how much they care for the poor — and how much they despise inequality — while
demonstrating conservatives’ callousness. By contrast, expanding the Earned Income Tax Credit would
require scarce on-budget dollars.

To be sure, weak labor markets still reflect the Great Recession’s hangover. But the
administration isn’t helping. It needs a new spirit: Make jobs, not propaganda.